KKR Buys 25% Of Hedge Fund That Invests in Natural Disasters

Working to boost its asset management arm, Kohlberg Kravis Roberts has made an unusual investment in a hedge fund seeking to invest in natural disasters. The move announced on Wednesday, saying the KKR & Co. L.P. (NYSE:KKR) has acquired a 24.9 percent stake in Nephila Capital. An $8 billion firm, Nephila Capital deals in reinsurance related to catastrophes like hurricanes and earthquakes. The financial terms of the deal were not disclosed.

KKR, known as a private equity powerhouse, has been diversifying its operations as a part of the transformation into a publicly traded company. The recent investment in the reinsurance firm is the latest example of the expansion by KKR & Co. L.P. (NYSE:KKR)’s asset management business, which has blossomed through deals like the acquisition of like a deal to buy Prisma Capital Partners, a fund of hedge funds.

“In backing Nephila, we are partnering with a team we have known for more than 15 years, dating back to our investment in Willis Group,” Henry R. Kravis and George R. Roberts, K.K.R.’s co-founders, said in a statement. “As the first dedicated manager of catastrophe risk investment strategies, they share the entrepreneurial spirit that pervades K.K.R.’s culture and, with an excellent 14-year track record, we think they are the best team in the industry.”

Nephila hedge fund is named after a species of spider, Nephila Clavipes, which, according to Bermuda folklore, is known for its ability to predict the weather. Nephila Capital was formed in 1998 by Frank Majors and Greg Hagood as part of Willis Limited, which at that time was a KKR & Co. L.P. (NYSE:KKR) portfolio company. The capital fund invests in reinsurance risk, including insurance-linked securities, catastrophe bonds and weather derivatives. Nephila Capital helps its investors to access such returns, which are not correlated to global financial markets relative to other asset classes.

The management team and investment strategies of Nephila will remain as it is and will manage the operations. Nephila also revealed that it will close its Juniper Catastrophe Fund and Triton Catastrophe Fund to new investors.

Man Group, which acquired a 25 percent stake in Nephila in 2008, will retain 18.75 percent of the firm following the transaction.

About the author

Aman has an MBA in Finance, and loves to write and research stocks.
His experience includes:
Presently, a director of a financial research firm.
Worked for three years with AIR worldwide (Catastrophic Risk Modeling & Consulting Firm) as a Risk analyst-II.
Worked as a marketing Head for 3+ years.